Stock Market Déjà Vu, Santa Rally New All Time High Forecast After FOMC Meeting
Stock-Markets / Stock Markets 2015 Dec 06, 2015 - 04:14 PM GMTBy: Nadeem_Walayat
It's Déjà Vu for the stock market following another bumper US Jobs report of +211k that beat the academic economist average expectations of 180k that follows hot on the heels of the November US Jobs positive surprise that once more prompted the consensus to quickly conclude that a Fed December US interest rate hike was a near certainty and likely to result in strongly negative consequences for stocks. However, this is the same consensus that has been blindly betting against the stock market rally for at least the past 3 months.
So it should not come as much surprise that another GOOD Jobs report is being perceived as more BAD news of impending doom that a Fed December interest rate hike will herald for stocks and bonds. If you want to know a good reason why the stocks bull market continues to grind the bears into dust then one only needs look at the US unemployment chart which over the past 2 years has relentlessly trended lower from 7% to 5%
Dow Trend to Date
With the Dow (17,847) less than 3% from its all time high (18.351), it can be easy to forget just how bearish the consensus has been, and not just the usual perma-bear crowd but for many months the widespread expectations have been that stocks were now in a bear market with prominent analysts even proclaiming that there was a 99.7% chance of a bear market.
moneymorning.com - 28th August, - Is This a Bear Market?
It actually indicates there's a 99.7% chance we're already in a bear market.
And money morning continuing into at least early November This One Number Makes Me Think the Market Rally Is Over
I believe the S&P 500 is entering a bear market and we are now experiencing a classic bear market rally.
So apparently the so called '99.7% chance' bear market has managed to rally to within 2.5% of its all time high, up from the August 2015 low of 15,370 that triggered the bear market mantra, becoming most vocal when stocks were at their most cheapest, painting a bleak picture for future stock market prospects in a case of rear view mirror syndrome.
The Dow's latest close of 17,847 places the Dow near its highest levels for 4 months, standing just 2.5% away from its all time high of 18,351.
So basically stocks have done the EXACT opposite to what most 'analysts' expectations were for the month for Stock Market Crashes (October), continuing into November and now December, The EXACT OPPOSITE!
Stock Market Trend Forecast Into End Dec 2015
My update of Mid September on the state of the over 6 year long stocks bull market series concluded in a detailed trend forecast for the Dow to briefly rally during September before continuing its correction into October before setting the scene for the Dow to rally by 20% targeting a range of 18,000 to 18,100 before the end of this year.
13 Sep 2015 - Stock Market Dow Trend Forecast for September to December 2015
My final conclusion is for continuing weakness that will result in a volatile trading range with a probable re-test of the recent low of 15,370 by Mid October that will set the scene for a strong rally into the end of the year that could see the Dow trade above 18,000 before targeting a gain for a seventh year in a row at above 17,823 as illustrated below:
My update of 4th November confirmed expectations for a bull run to above 18,000 with probability even favouring a new Dow all time high before the end of December.
04 Nov 2015 - Stocks Bear Market Resolving Towards New All Time High Before End of 2015
Therefore the stock market clearly is clearly showing relative strength which implies my bullish forecast objective looks set to be achieved significantly earlier than expected which means that the Dow looks set to make a new all time high before the end of this year i.e. to trade above 18,351.
Whilst my most recent update of a month ago that followed the November U.S. Jobs report concluded in a trend forecast graph for the Dow to rally into the End of November before entering into a correction into the December FOMC meeting, followed by a Santa rally that would attempt to set a new all time high before year end.
08 Nov 2015 - Fed December Interest Rate Hike Stock Market Panic Trigger For New All Time High?
Therefore this implies the trend to a new all time high is likely to start AFTER the Mid Dec FOMC meeting. So will 2 weeks be enough time to set a new all time high? That is a very tough call that given the timing of the next Fed meeting that the Dow could JUST miss setting a new all time high before the end of December. The following graph better illustrates what is going through my mind in terms for the probable prospects for the Dow into the end of 2015.
The subsequent trend in large part closely matched the trend forecast, with Friday's 300 point surge showing relative strength which implies an increased probability for a new Dow new all time high (above 18351) before the end of December.
Stock Market December Quick Update
Therefore having already concluded that the Dow remains on track for setting a NEW All Time High before the end of December, what's left to determine is whether Santa will come early and so stocks will just keep on trundling higher or will the Dow dive into the mid December FOMC meeting and Santa appearing after the meeting.
A quick technical take suggests -
1. Despite stocks remaining near their highs, nevertheless have managed to greatly unwind their overbought state as illustrated by the MACD.
2. The strong US jobs news has done much to remove uncertainty of what will happen at the next Fed meeting. Nevertheless market participants are easily spooked by rumours that tend to over exaggerate expectations of what could happen.
3. The consensus have had it in their heads for a long time that a Fed interest rate hike will be bearish for stocks. In my opinion and experience this is just another example of mantra analysis i.e. the more they say it the more they and others are likely to believe it, and then witness the exact opposite to happen which is why over 90% lose, it's not their fault, it's evolution, Homo Sapiens Mantra -
In my opinion the Dow is being coiled like a spring, ready for a santa rally to send stocks into the stratosphere, so whilst there may be volatility in the run up to the Mid December FOMC meeting, however whatever the Fed decision turns out to be (rate hike is most probable) it's just not going to stop santa from delivering a new Dow all time high this month.
Stocks Bull Market 2016 and Beyond
While it is early for my in-depth analysis and detailed trend forecast for the Dow for 2016, however a brief reminder of my long standing view illustrates that nothing so far has transpired that implies that 2016 will not ALSO turn out to be another bullish year for stocks for the 7th consecutive year! In fact 2016 should turn out to be a far stronger year than 2015, so then what for the 99% bear market mantra?
"Look it's simple, very simple, stocks are NOT in a bubble, until stocks reach the bubble stage then they are unlikely to resolve into a bear market, having traded stocks for over 30 years, I KNOW what a bubble looks like! In fact the bubble top may turn out to be another 4 or 5 years away! Imagine that a bull market that continues for another 4 or 5 years! IMAGINE IT, now imagine the perma bear nonsense that is going to flow as stocks relentlessly climb ever higher, do you really want to miss another 4-5 year bull run?"
Let alone the probability that stocks could continue marching higher for several more years as I alluded to in my Feb 2013 Stocks Stealth Bull Market 2013 and Beyond ebook (FREE DOWNLOAD).
"If you have actually read the whole of this analysis (rather than just skipping to the conclusion) then the message you will get is one of an ongoing stocks bull market that like a coiled spring is prepping itself to propel the stock market to levels that cannot be imagined today I.e. my Elliott Wave and broadening top analysis gives strong indications for longer-term expectations. For instance, I can easily see the Dow trade at 20,000 during 2017, so expect plenty more Stocks Stealth Bull Market ebook's to follow."
And now over 2.5 years on from the then Dow 13,992 level, Dow 20,000 during 2017 appears very probably, so what then for the perma-bear crowd for the whole of 2016 and into 2017? I can tell you what the perma crowd will do for the whole of 2016, they will cry 'Fed manipulated market', which is what I pointed out right at the start of the bull market in March 2009! As being one of the primary drivers for a multi-year bull market that is now about to complete its 7th year!
And finally remember "greater the deviation from the bull market peak then the greater the buying opportunity presented".
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By Nadeem Walayat
Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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